Organized, and even disorganized, religion oversees large amounts of assets. From the centuries of wealth accumulated by the Roman Catholic Church, to the Church of Scientology’s operating as a lucrative business that pays its recruiters from new-member revenues, churches are rich.
This leads inevitably to the question of whether, as investors, it is possible to serve God and Mammon – to manage material wealth in line with the principles of faith.
In a world where environmental, social and governance (ESG) issues are increasingly seen as financially material by mainstream investors, are religious investors any different?
With a history stretching back over 250 years, ethical investing by churches and religious bodies is well established, but in recent decades it’s become more sophisticated than just the traditional negative screens. With the increasing urgency of tackling climate change, the movement has accelerated to the point where some religious investors believe they have the responsibility and the capacity to lead the changes needed to save the world.
The Roman Catholic Church, which has a long history of screening out investments that conflict with its principles, is now understanding the power that investment decisions may have to shape the future, both directly and by modelling the change it wants to see.
Pope Francis, through his encyclical “Laudato Si: On care for our common home,” has made it clear that environmental awareness and ecological concern are entirely in line with Catholic social teaching. The Global Catholic Climate Movement has adopted a comprehensive report, “Ethical Investments in an Era of Climate Change,” which explicitly links Catholic social teaching, climate change and investment policy.
“Laudato Si is such a groundbreaking document,” says Lorna Gold, head of policy and advocacy at Trocaire, the Irish Catholic development agency, and author of the report. “Most of the leadership and clergy were not formed in this school of theology. They had an ethical view, but the view of a responsibility to other creatures, to the web of life – that’s not something they would have learned about.”
The church’s ethical investment principles were summarized in a statement last May. “The celebration of human life, creation, and human dignity are fundamental Catholic principles and values that are to guide the Institute’s investment choices and always prevail over return consideration,” it says, referring to the Institute for the Works of Religion (IOR), commonly known as the Vatican Bank.
In practice, the institute excludes investments that violate globally recognized principles concerning human rights, work standards, the fight against corruption and the fight against environmental crimes. In addition, the Catholic stance against contraception and abortion means any company involved in these products, or in stem cell research, is also on the banned list.
Gold says her report, a comprehensive guide for Catholic institutions on how to integrate climate change into their investment philosophy, is about broadening the frame of reference for faith-based investing.
In September, the Global Catholic Climate Movement announced that 19 member institutions, including the Belgian and Irish Bishops’ Conferences, would divest all fossil fuel holdings from their funds. It was part of a larger announcement at the Global Climate Action Summit, where some 900 institutions representing US$6 trillion of assets signalled the intention to divest.
Many investors (including other faith-based active investors) believe engagement with oil companies is worthwhile, arguing they will continue to be needed through the transition to a low carbon economy and that shareholder pressure for these companies to cut emissions can be effective. Gold is convinced this is the wrong approach.
“The oil majors have so much to lose in terms of assets; they will have such big losses on their books, they won’t be able to manage. The whole structure of those companies is just wrong,” she says. Furthermore, as might be expected from a faith-based investor who is guided by a belief in God and the church, she believes the symbolism of divestment is powerful.
The report refers repeatedly to “prophetic leadership,” calling on Catholic institutional investors to show others the way to care for the planet.
This leadership is already showing some impact. In July, the Irish government voted to divest the Irish Strategic Investment Fund from all fossil fuel investments over the coming five years. Trocaire was closely involved in drafting the bill. However, despite the historically close relationship between the Irish state and the Catholic Church, the argument was based on the need to meet Ireland’s emissions-reduction obligations under the Paris Agreement.
“Whether you believe it is because of intergenerational justice or because we have a duty to be stewards of God’s creation doesn’t really make a difference,” says Gold.
While the argument was largely on the grounds of Ireland’s international obligations, she says procedural requirements meant the bill had to demonstrate it would not create an undue financial burden, so it was an advantage that the financial argument in favour of portfolio decarbonization is strong.
Although the Global Catholic Climate Movement is a group of more than 250 institutions, it has the advantage of a central figure with ultimate authority and can therefore assume its members are all singing from the same hymn sheet. Not all religions are so coherent in terms of doctrine, but nevertheless many choose to come together to improve their understanding of how religion and investment interact and to pool their reach as shareholders.
“Do people need uniform beliefs to act together? Our experience is that they don’t,” says Peter Chapman, senior adviser at Canada’s Shareholder Association for Research and Education (SHARE). “You just cannot invest successfully in the long run as an institution unless you’re investing in a healthy, sustainable industry.”
SHARE has been working with churches to support their faith-based investment policies since it was set up in 2000 with Chapman as executive director. He stepped down from the role last summer, but continues to work with the group.
Chapman is keen to point to the long history of shareholder activism by faith investors, from boycotting companies in apartheid South Africa to talking about climate change in the 1980s, but also says “they are still innovating and doing new things.”
Chief among these is an unprecedented drive to work in concert with like-minded investors, forming coalitions and relationships across the world.
As one example, in 2018, SHARE, along with the U.K.-based Church Investors Group (CIG), the U.S. Interfaith Center on Corporate Responsibility and the Church of Sweden, launched an international, faith-based collaboration on modern slavery.
This collaboration involved a wide range of strategies, from an app developed by CIG to help U.K. drivers weigh up whether the car wash they use participates in illegal human trafficking, to engagement with companies in the hospitality sector regarding their obligation to recognize where modern slavery occurs on their premises.
The CIG provides research, coordination and guidelines for its members to use as they attempt to invest in line with their religious beliefs.
It has 66 members, all the investment arms of Christian churches. Of the £20 billion-plus that they represent, some £12 billion belongs to the Church of England.
The church has three main investment bodies. The Church Commissioners oversee the church’s endowment, which needs to return a substantial income for its upkeep. The Church of England Pensions Board oversees a number of pension funds of varying sizes and liabilities. And the CBF Church of England Funds run by specialist asset manager CCLA is open to investment by any charitable organization with objects closely connected to the work of the Church of England.
The Church Commissioners outsource most of the management of church assets, including a large passive core. While this is in line with their fiduciary duty to manage the money prudently, it makes it harder to ensure all portfolios are entirely aligned with the church’s values.
The three investment bodies fund an Ethical Investment Advisory Group, chaired by the Bishop of Manchester, which sets out an ethical investment policy. As a baseline, it uses the Principles for Responsible Investment, but in addition lays out restrictions on investments in alcohol, pornography, weapons, payday lending and human embryonic cloning. Climate change is recognized as a distinct ethical issue, so all church investments are expected to be in line with a climate change policy. In particular, it will not invest in any company that derives 10 per cent or more of its revenues from tar sands or thermal coal.
The investment policies of the Church of England itself have repeatedly come under fire as its portfolios are found to contain investments in companies which do not meet its own stated principles.
In 2013, the Archbishop of Canterbury announced a plan to put a particular payday lender out of business by supporting more consumer-friendly credit unions. This led to embarrassment when it was discovered the Church Commissioners, who are responsible for managing the church’s funds, had made an indirect investment in the company. It was soon divested, but the situation is likely to recur on a regular basis, given the size and complexity of the various funds affiliated to the funds and the archbishop’s commitment to speaking out on matters relating to contemporary society.
The CBF Church of England Investment Fund, which manages assets of £1.4 billion for charitable organizations connected to the Church of England, discloses investment positions in 95 companies accounting for 64 per cent of its holdings. The disclosures show no direct holdings in companies which derive 10 per cent or more of revenues from tar sands or thermal coal. It also shows the fund shed most of its directly held Royal Dutch Shell stock and fully divested from ExxonMobil, BP, BHP Billiton and GlaxoSmithKline.
Interestingly, there is a lot of overlap between the fund’s “conviction” portfolio of concentrated positions and the Corporate Knights Global 100 Most Sustainable Corporations, including Kao, Ecolab, Unilever, ING Group, L’Oreal, Valeo and the number one ranked company in 2019, Chr. Hansen, in which the fund has a £9.5 million stake. This exposure represents 0.72 per cent of the fund’s holdings, over 23 times more than the company’s weight on the MSCI World Index. Practising what you preach does not appear to have hurt returns for the fund, which has outperformed its comparison benchmark on a one, five- and 10-year basis, turning in annualized performance of 7.84 per cent versus 6.80 per cent for its benchmark over the past decade.
A theme that comes up repeatedly with religious investors of all creeds is that managing the selection of and relationship with investment managers is key. The Joseph Rowntree Charitable Trust (JRCT), a Quaker foundation, outsources its asset management to five managers after intensive due diligence to ensure their investment philosophy aligns with Quaker values.
Having appointed these managers, however, the JRCT does not leave them alone to manage its money. Instead, it meets the managers twice a year; once for a traditional performance review and once to discuss their process with regard to ESG issues. This can include scrutinizing the fund managers’ own internal practice, according to Jackie Turpin, the JRCT’s head of finance.
“This meeting includes issues on our own agenda, such as the need for tech companies to develop good governance and ethical standards,” she explains. “Two years ago, we talked to them about the gender imbalance at the fund managers.”
In addition, the JRCT has established a regular practice of convening all its fund managers to discuss larger issues together, either to promote best practice or occasionally because they feel the managers working together can promote better outcomes.
Although most religious investors can agree on some basic principles, which overlap strongly with mainstream ESG investment principles, there are also areas of difference. For example, while the Catholic Church has for a long time refused to invest in any company that does stem cell research or produces contraceptives or abortifacients, the Jewish Reform Pension Board (RPB), in its Reform Jewish Values Fund, specifically overweights companies that support reproductive rights.
“We’re known as a liberal, progressive movement,” says Michael Kimmel, executive director of the RPB. Kimmel explains its approach to investing is based on 100 years of resolutions by Reform rabbinical bodies, all of which are centred on the twin ideas of “tikkun olam,” which means making the world whole, and “tzedek,” or justice. Between them, these two principles cover pretty much all of regular ESG topics.
As with many religious investors, the majority of the RPB’s ethical policy is uncontroversial, but there are some distinctive aspects. In this case, the recognition of the special place of Israel in Jewish life, and therefore overweight exposure to the Israeli economy, is a specifically Jewish concern. The RPB Reform Jewish Values Fund top 10 positions bear this out, including East Japan Railway (invited to spearhead the “Tracks for Peace,” a rail line from Haifa to Saudi Arabia), Coca-Cola (2,000 employees in Israel), and shopping centre conglomerate Unibail-Rodamco-Westfield (Westfield’s founder Frank Lowy survived the Holocaust and fought in the Israeli war of independence).
Because it is primarily a pensions company, the RPB cannot prioritize principle over returns as the Joseph Rowntree Charitable Trust can. This means it has large passive holdings, where it has given up the ability to engage with companies or vote proxies, because its fiduciary duty requires it to hold the most diversified, efficient portfolio available.
This being said, it does not expect the Reform Jewish Values Fund, the RPB’s most actively faith-driven product, to underperform its global benchmark (MSCI ACWI), despite significant differences in weightings of various sectors and an 80 per cent lower carbon footprint. (The much lighter carbon footprint and dearth of fossil fuel holdings is something that the Reform Jewish Values Fund has in common with the largest Islamic values mutual fund, Amana Growth Fund, which has US$1.7 billion assets under management.)
The RPB launched its Reform Jewish Values Fund in January 2018 in response to growing demand from its investors. “They wanted the ability to do more with their investable dollars,” says Kimmel.
This is consonant with a global trend of savers being more aware of the impact of their investment decisions. Both secular and religious investment managers are having to answer to their beneficiaries, to justify the decisions they make in the context of the world we live in. Religious investors are becoming increasingly aware they can choose to use their investment policy as a way to express their values in the real world. We can expect to see more religious investors becoming more open, vocal and active in pursuit of their faith. It could be a powerful example for the rest of us to also invest with our values.
For snapshots of Vatican, Anglican and Aga Khan funds, read O Holy Funds.